Legislature(2003 - 2004)
04/02/2004 09:05 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 313
"An Act making supplemental and other appropriations; amending
appropriations; making an appropriation to capitalize a fund;
and providing for an effective date."
SENATE BILL NO. 314
"An Act making supplemental and other appropriations; amending
and repealing appropriations; making appropriations to
capitalize funds; and providing for an effective date."
The Committee continued hearing presentations from departments on
the budget requests of both bills. The Committee referenced a
spreadsheet titled "FY2004 SUPPLEMENTALS" dated March 31, 2004,
which outlined the requests [copy on file].
Co-Chair Green referenced the spreadsheet and clarified that it is
intended for the purpose of convenience and discussion. This
spreadsheet contains all but two of the proposed amendments.
Department of Labor and Workforce Development
Section: 2
Department: University Education Labor
Supplemental Need: Mar 22 Amd: appropriate the June 30, 2004
balance of the Alaska Technical and Vocational Education
Program account (TVEP) to the four entities allowed to receive
the funds: UA, Galena Project Education Voc Training Ctr,
Kotzebue Technical Ctr, and AVTEC
$1,002,100 TVEP
GUY BELL, Director, Division of Administrative Services, Department
of Labor and Workforce Development, testified that the Alaska
Technical and Vocational Education Program is funded by one-fifth
of the employee contributions made to the unemployment insurance
trust. These funds are designated to vocational education programs
around the State. The current allocation is based on the following
percentages: 63-percent for the University of Alaska, 22-percent
for the Alaska Vocational Technical Center, 11-percent for the
Kotzebue Technical Center, and four-percent for the Galena Project
Educational Vocational Training Center. This request would allow
the FY 04 TVEP fund balance to be allocated according to the above
percentages. The amount of TVEP fund balance is dependent on
whether the funds "swept" from the TVEP fund into the general fund
in FY 03 are returned through a "reverse sweep".
Co-Chair Green asked the balance amount if the reverse sweep does
not occur.
Mr. Bell responded the balance would be approximately $88,000.
Co-Chair Green questioned the amount of funding each of the
vocational education programs received in FY 04.
Mr. Bell replied that the total amount appropriated in FY 04 was
approximately $4.6 million. This amount was then allocated to the
four vocational education programs using the percentages detailed
above.
Co-Chair Green asked how much of the appropriation was swept into
the general fund.
Mr. Bell answered that $913,600 was swept at the end of FY 03. If
this amount were reinstated to the TVEP fund the fund balance would
be just over one million dollars.
Co-Chair Green asked how these programs would be affected if this
request is not included in the FY 04 supplemental budget.
Mr. Bell responded that the balance of the TVEP fund at the end of
FY 04 would remain in the account; the funds would not be allocated
until a future appropriation by the legislature.
Co-Chair Green restated her earlier question.
Mr. Bell answered that if this request were not included in the
supplemental budget the FY 05 operating budget would dictate the
TVEP fund. The FY 05 operating budget would appropriate
approximately $4.6 million to TVEP, and this appropriation would
then be allocated to the vocational education programs.
Co-Chair Green asked for a chart comparing the affects of this
supplemental budget request if adopted, and if not adopted.
Mr. Bell responded that he would need to compare the affects of
this supplemental request if passed with the reverse sweep, if
passed without the reverse sweep, and if not adopted.
PAT PITNEY, Director of Budget, University of Alaska, testified via
teleconference from an offnet location that the University supports
this request. The TVEP is directed at high demand work force areas
determined by the Alaska Workforce Investment Board. The University
is attempting to respond quickly to certain high priority workforce
needs, and this additional appropriation would allow the University
some financial flexibility. Specifically, the University's
vocational health care programs need additional funds to complete
classroom set-up and distance course development. The University
requests that these additional funds be appropriated in FY 04.
Co-Chair Green asked Ms. Pitney if she had written a letter to the
Committee expressing the University's support of this request.
Ms. Pitney answered no, and added that she would be able to draft a
letter for the Committee.
Co-Chair Green requested that Ms. Pitney also draft a comparison of
the affect on the University's vocational education programs if
this request is adopted, and if it is not.
Senator Olson informed that in 2003 Kotzebue Technical Center lost
$300,000 in the sweep of funds out of the TVEP fund. He asked if
this request would consider Kotzebue Technical Center's loss of
funds.
Ms. Pitney affirmed that the Kotzebue Technical Center would
receive their portion of the funds made available for an additional
FY 04 appropriation.
Senator Olson asked if Kotzebue Technical Center would be receiving
approximately $110,000 of the funds if this supplemental amendment
were adopted.
Ms. Pitney affirmed that the Kotzebue Technical Center would
receive that amount if they are allocated 11 percent of the overall
appropriation.
Mr. Bell clarified that if a reverse sweep occurs and this request
is adopted the Kotzebue Technical Center would receive $110,000.
Department of Community and Economic Development
Section: 3(d)
BRU: Regulatory Commission of Alaska
Supplemental Need: Mar 22 Amd: Legal counsel costs
$180,000 Unrestricted Federal Receipts
DAWN BISHOP-KLEWENO, Special Assistant to the Commissioner and
Chair, Regulatory Commission of Alaska, Department of Community and
Economic Development, testified via teleconference from Anchorage
that this request would assist the Commission with legal costs
resulting from the appeal of legal cases involving tax rate changes
effective from 1996-2000.
Co-Chair Green noted that several departments' supplemental
requests involve telecommunications costs.
ERIC SWANSON, Director, Division of Administrative Services,
Department of Administration, testified that the supplemental
requests relating to telecommunications costs reflect the amounts
that the State agencies are unable to pay. These amounts also
reflect increases in telecommunications costs from FY 03 to FY 04.
In FY 03 the Department of Administration was able to forgive
portions of the telecommunications costs in order that certain
State agencies did not have to submit supplemental budget requests.
The Department anticipated that cost savings would be achieved
through the Telecom partnering agreement. However, the agreement
did not meet the expectations of the Department, and cost savings
were not achieved. The Department would be in a "cash flow crunch"
if the various State agencies were unable to fund the
telecommunications costs.
Co-Chair Green asked the time frame for finding a solution to this
situation.
Mr. Swanson responded that the Department is considering revising
the methodology used to determine the enterprise productivity rate
(EPR), which is the rate charged for telecommunication services.
Currently the EPR is based on the number of jobs, which causes
certain State agencies to be more heavily impacted.
Co-Chair Green asked how these high telecommunication costs would
impact the FY 05 budget.
Mr. Swanson replied that the Department does not have a reliable
forecast for FY 05 telecommunication costs. These costs would be
determined by methodology changes the Department might implement in
FY 05.
Co-Chair Green asked if the Department was committed to correct the
methodology that has contributed to these high telecommunication
costs.
Mr. Swanson affirmed the Department's willingness to make changes.
Co-Chair Green noted that nearly every department has been affected
by these high telecommunication costs.
Mr. Swanson clarified that the Department of Health and Social
Services, the Department of Transportation and Public Facilities,
and the Department of Corrections are the State agencies requesting
FY 04 supplemental budget amendments related to this issue.
Co-Chair Green mentioned that the Department of Health and Social
Services has requested several amendments related to this issue.
Mr. Swanson affirmed.
Co-Chair Green asked if the impact of not adopting the related
requests to the FY 04 supplemental budget would be severe.
Mr. Swanson explained that the State could have problems with the
federal government if these costs are not paid. In addition,
without a supplemental appropriation the Department of
Administration could experience a cash flow shortage.
Department of Health and Social Services
Section: 10(x)
BRU: Probation Services
Supplemental Need: Mar 22 Amd: Court ordered costs for
Division of Juvenile Justice
$295,900 general funds
JANET CLARKE, Director, Division of Administrative Services,
Department of Health and Social Services, testified that a
component of the Department's budget was deleted relating to court
ordered costs for juvenile justice cases. The Department has
submitted this request because the legislature determined that the
Department should include the court ordered costs in a supplemental
request after the actual costs are realized.
Section: 10(y)
BRU: Alaska Psychiatric Institute
Supplemental Need: Mar 22 Amd: Telecommunication costs
$98,400 Unrestricted Federal Receipts
Section: 10(z)
BRU: Children's Services Management
Supplemental Need: Mar 22 Amd: telecommunications costs
$49,500 Unrestricted Federal Receipts
Section: 10(aa)
BRU: McLaughlin Youth Center
Supplemental Need: Mar 22 Amd: Telecommunications costs
$135,300 Unrestricted Federal Receipts
Section: 10(bb)
BRU: Public Assistance Field Services
Supplemental Need: Mar 22 Amd: Telecommunications costs
$110,700 Unrestricted Federal Receipts
Section: 10(cc)
BRU: Pioneer Homes
Supplemental Need: Mar 22 Amd: Telecommunications costs
$159,900 Unrestricted Federal Receipts
Ms. Clarke informed that the Department's telecommunication cost
supplemental requests total $553,800. She informed that the Alaska
Communication Systems (ACS) contract changed the methodology of
accounting and allocating costs from a device count to a position
count. The ACS contract was supposed to offer savings in long
distance toll charges to offset costs; however, the Department of
Health and Social Services has not yet realized savings from this
change.
Ms. Clarke explained that the Pioneers' Homes budgeted $66,000 for
telecommunications costs; however, based on the ACS methodology the
rates would be $600,000. The Department has attempted to minimize
the impact of these costs, but it could not afford to pay the
increased rates.
Department of Law
Section: 12(c)
BRU: Environmental Law
Supplemental Need: Mar 22 Amd: Studies and analyses related to
oil remaining in the environment from the Exxon Valdez oil
spill
$1,500,000 EVOSS
CRAIG TILLERY, Chief Assistant Attorney General - Statewide Section
Supervisor, Environmental Section, Civil Division, Department of
Law, testified via teleconference from Anchorage. He testified as
follows.
The Department has requested an appropriation of $1.5 million
in receipts from the Exxon Valdez oil spill Trustee Council.
This amount has been approved by the Trustee Council at its
most recent meeting. Many of the natural resources injured by
the Exxon Valdez oil spill have recovered or are well along in
the process of recovering. One area that remains a particular
concern stems from the discovery in the year 2001 that there
was significantly more oil remaining in a toxic state in the
environment than was anticipated. Fuel studies have indicated
that this lingering oil is bio-available to species that feed
in the inter-tidal and near shore environment. Preliminary
studies indicate that certain species with access to this oil,
in particular harlequin ducks and sea otters, continue to
ingest or otherwise contact the oil and may be adversely
affected by it. In addition, there are other species such as
herring where studies indicate that injury persists but the
connection to the oil spill remains clouded.
This appropriation was directed by the Trustee Council to
allow the State to retain independent outside experts to
analyze results of these studies, to develop potential further
studies to further clarify the issue, and to fund those
studies, and finally, if warranted, to develop a strategy for
dealing with any problems. All of these moneys are restricted
program receipts and are limited in their use to the
restoration activities requested by the joint federal/State
Exxon Valdez oil spill Trustee Council.
Co-Chair Wilken asked if this effort is mandated or voluntary.
Mr. Tillery replied that the effort is mandated because of the
responsibility of the State in its role within the EVOS Trustee
Council. However, the State could not be forced to undergo this
additional study. Much of this appropriation would not be expended
by State employees, but by outside experts and the federal
government.
Co-Chair Wilken questioned the consequences of disallowing this
study.
Mr. Tillery answered that if this study were not undertaken,
"questions are unanswered". These unknowns could negatively affect
the State, industry, and private citizens.
Co-Chair Wilken expressed that studies conducted through the EVOS
settlement have become "a jobs program". He requested a list of
projects that this appropriation would fund, and the specific
project costs. He asserted that he is not in favor of this request.
Mr. Tillery agreed to provide the requested information.
Senator Bunde commented that areas of Prince William Sound had been
left un-restored after the oil spill so that the natural recovery
rate of the environment could be studied. He asked if the oil in
the intentionally un-restored areas was affecting the wildlife the
witness referenced.
Mr. Tillery responded that the majority of the studies have been
conducted on beaches that have been cleaned. Experts had
anticipated that any remaining oil would have been "weathered out",
but more oil, and oil with high toxicity was actually found present
on some of these beaches. Through testing it has been determined
that the oil is "leaching out" of these beach areas, and is
affecting harlequin ducks and sea otters.
Senator B. Stevens referenced a document he received from the EVOS
Trustee Council requesting $900,000 to conduct an eco-system study
in the Prince William Sound area.
Mr. Tillery replied that though all of the EVOS programs coordinate
with one another, the request Senator B. Stevens received is
different than this supplemental request. He reiterated the origins
of this supplemental request, and emphasized its specificity.
Senator B. Stevens cited the memo dated March 23, 2004 requesting
federal receipt authority for approximately $745,000 to conduct an
"eco-system ocean integrated observing system". He again asked if
the request he received is related to this supplemental request.
Mr. Tillery answered that the request Senator B. Stevens received
reflects a grant offered by the National Oceanic and Atmospheric
Administration (NOAH). He again clarified that the two studies are
not related.
Senator B. Stevens read some excerpts of the EVOS document he had
received. He asked how much funding would be used for studies on
the continuing impact of the Exxon Valdez oil spill.
Mr. Tillery replied that the studies funded by this supplemental
request should "cap" studies on the lingering affects of the oil
spill. He qualified that the studies referenced by Senator B.
Stevens would not examine the lingering affects of oil, but would
focus on the currents of the Prince William Sound.
Co-Chair Green referenced another EVOS request, and asked if that
request was the same as this supplemental request.
Mr. Tillery answered that the two requests were related, but not
the same and have different funding sources. The request Co-Chair
Green referenced is related to a "re-opener provision" in the EVOS
settlement decree.
Co-Chair Green asked if more EVOS settlement funds might be
awarded.
Mr. Tillery responded that the potential existed if a study
determines that unanticipated injury related to EVOS has occurred.
If any additional funding were received it would be directed at
very specific, pre-determined projects.
Co-Chair Green asked how the State would benefit from this
supplemental request.
Mr. Tillery explained that the State's resources would be restored.
The public would benefit because the EVOS would finally be "put to
rest". The studies to be funded by this request would eliminate the
unknowns and speculation regarding the lingering affects of the
EVOS.
Co-Chair Green asked why this appropriation would be directed to
the Department of Law. She asked if the Department would be
contracting with outside agencies or other State agencies.
Mr. Tillery replied that the Department of Law is one of three
State members of the EVOS Trustee Council. The Trustee Council
determined that the funding should go to the Department of Law
because certain outside experts have already been contracted
through the Department; therefore continuity, efficiency and cost
savings could be achieved through allowing the Department of Law to
distribute the funds. He qualified that the Department would be
merely a "conduit" for this appropriation.
Co-Chair Green asked about the consequences if this request is not
included in the FY 04 supplemental budget.
Mr. Tillery explained that this request must be included the
supplemental budget because certain aspects of the studies must
begin this field season. The studies might not be completed if the
funding is not granted until FY 05.
Co-Chair Green asked the witness to document his explanation.
Senator Dyson informed that he had been involved with numerous
marine science projects some of which were funded by the EVOS
settlement funds. He continued that he could potentially bid on
EVOS projects in the future, and explained that his family operates
a charter sightseeing boat on Prince William Sound. He summarized
that he has a "tenuous" conflict of interest regarding this
supplemental request.
Senator B. Stevens questioned when the EVOS FY 03 annual report
would be distributed.
Mr. Tillery answered that he was unsure, but that he would find
out.
Co-Chair Green noted that she had passed over certain supplemental
requests that involve direct transfers.
Department of Natural Resources
Section: 14(d)
BRU: Agricultural Division
Supplemental Need: For the marketing and continued
implementation of the State Organic Certification Program
$90,000 ARLF
NICO BUS, Administrative Services Manager, Division of Support
Services, Department of Natural Resources, testified that
approximately $30,000 of this appropriation would be applied
directly to the State Organic Certification Program, and $60,000 to
the marketing of this program.
Co-Chair Green noted the legislation authorizing this appropriation
had been passed, but not implemented.
Mr. Bus responded that the Department does not have the necessary
regulations to use program receipts to fund the State Organic
Certification Program as the legislature had directed. This request
would use Agricultural Revolving Loan Funds to fund the authorship
of the needed regulations.
Section: 14(k)
BRU: Capital
Supplemental Need: Mar 22 Amd: The balance of the Diamond
Creek Parcel Purchase, reviewed by the Legislature as RPL 10-
4-5002 on July 9, 2003, needs to be moved from operating to
capital as the project will not be completed by end of FY 04.
$0.0
Section: 14(l)
BRU: Development Special Projects
Supplemental Need: Mar 22 Amd: Sec. 47(b), ch. 1, SSSLA 2002
for appraisal of public school lands needs lapse date
extension from June 30, 2004 to June 30, 2006 due to on-going
litigation.
$
Mr. Bus outlined these requests. He noted that both of these
amendments are simply requesting the extension of specific
projects.
Department of Transportation and Public Facilities
Section: 19(l)&(j)
BRU: Capital
Supplemental Need: Mar 22 Amd: Ekwok Airport project-adds $2
million and changes the project title from "rehabilitation" to
"improvements."
$2,000,000 federal funds
NANCY SLAGLE, Director, Division of Administrative Services,
Department of Transportation and Public Facilities, testified that
originally this project was intended to rehabilitate the existing
airport facilities due to weather damage, but the Department has
determined that relocating the airport is a better option.
Co-Chair Green asked if the decision to relocate the facility was
due to the cost inefficiency of remodeling the existing airport.
SFC 04 # 67, Side B 09:53 AM
Ms. Slagle answered that relocating the facility is the better
option, and with this appropriation the Department could afford to
relocate the facility.
Co-Chair Green asked if this supplemental request impacts federal
funds in the FY 05 capital budget.
Ms. Slagle replied that no, this appropriation would utilize
Federal Aviation Administration (FAA) Airport Improvement Program
funds.
SB 313
Section: 20(1)
BRU: Capital
Supplemental Need: Mar 22 Amd: FY04 Earmark for Akutan
alternative plan to use ferry access to airport. No match
required.
$1,000,000 federal funds
Ms. Slagle reminded that the federal omnibus appropriation bill has
several earmarks relating to airports. The Department did not
initially realize that legislative authority was needed to
authorize this earmark. This request would allow the Department to
consider alternatives for the location of the airport in Akutan,
and related ferry alternatives.
Department of Education and Early Development
Co-Chair Green referenced a packet containing a memorandum to the
Senate Finance Committee from the Office of Management and Budget
dated March 31, 2004, which contained an amendment to SB 313
proposed by the Department of Education and Early Development [copy
on file]. The packet contained another memorandum from Karen
Rehfeld of the Department of Education and Early Development to the
Office of Management and Budget dated March 30, 2004, which
provided information about the amendment [copy on file].
KAREN REHFELD, Deputy Commissioner, Department of Education and
Early Development, testified that the legislature has approved an
expansion project of the Mount Edgecumbe dormitory and classrooms.
The Department is hoping to serve an additional 65 to 80 students
following the completion of the expansion. The Governor is very
supportive of this expansion project, and has requested that it be
accelerated so that additional students could be accommodated
beginning in August 2004. Additional funding is needed in order to
carry out this request.
Ms. Rehfeld explained that this supplemental request contains two
parts. One part involves a capital project that would expedite the
renovation project in order that the facilities could be used in
December 2004. The other part involves operating funds that would
enable Mount Edgecumbe to house students while the dormitory
renovation is being completed. The Department is considering
utilizing a vacant floor of the Sitka Pioneers' Home to temporarily
house the students. The dormitory management and food services
contracts would need to be amended to allow for the additional
students and the temporary use of the Sitka Pioneers' Home.
Ms. Rehfeld referenced the memorandum dated March 30, 2004 and
clarified that the names used to reference certain rooms within the
Mount Edgecumbe High School were no longer relevant, specifically,
the names "Dance Studio" and "Home Economics Room".
Ms. Rehfeld continued that the Department of Transportation and
Public Facilities (DOTPF) would serve as the project manager for
the renovation project. The DOTPF would be visiting the Mount
Edgecumbe High School to ensure that the renovations are
"appropriate" and "realistic" given the target timeline.
Senator Olson asked if the intention of the renovation project is
to allow Mount Edgecumbe's student population to increase.
Ms. Rehfeld responded yes, that Mount Edgecumbe currently serves
approximately 320 students, and the renovation would allow
approximately an additional 80 students.
Co-Chair Wilken informed that the Legislative Budget and Audit
Committee had discussed the Mount Edgecumbe renovation project in
October 2003. At that time the Committee approved a $1.65 million
Revised Program - Legislative (RPL) for the planning and design of
the Mount Edgecumbe renovation expected to be completed by the fall
of 2004. In a December Committee meeting a second RPL of six
million dollars was approved for renovation expected to be
completed by the fall of 2005. During the December meeting the
Department assured the Committee that no additional funding would
be needed, and that the date of expected completion would be the
fall of 2005.
Co-Chair Wilken asked if this request would actually enable the
completion of the renovation project by the fall of 2004, and
whether the State is paying a financial "penalty" by rushing this
project. He expressed concern regarding the new project timeline.
Ms. Rehfeld responded that there would be increased costs
associated with expediting the renovation project. From the
beginning of this project the Governor expressed interest in having
it completed by the fall of 2004. The Department did not realize,
upon originally approaching the Legislative Budget and Audit
Committee to request project funding, that it had the ability to
request the entire project appropriation at one time. The
Department requested funding for the planning and design work not
knowing what other funding might be available. The Department was
"delighted" when the Committee approved the construction funding.
Ms. Rehfeld continued that it would be difficult to accommodate
additional students in the 2004 school year without this
supplemental request. The Deputy Commissioner of DOTPF is confident
that the expansion project could be completed within the current
timeline, but additional costs would be incurred.
Co-Chair Wilken asked the status of the renovation project.
EDDIE JEANS, Manger, School Finance and Facilities Section,
Education Support Services, Department of Education and Early
Development, testified that the preliminary designs for the
renovations of the dormitory facility are completed. The Department
of Education and Early Development is working with the DOTPF to
finalize the preliminary designs.
Mr. Jeans qualified that $7.5 million is sufficient to complete the
Mount Edgecumbe renovation project. This supplemental request is
addressing the need for temporary facilities to provide for 30
additional students in the 2004 school year until the renovations
are completed. Two additional renovations would be needed to
convert spaces into temporary classrooms. In summary, this request
is not an attempt to acquire more funding for the original
renovation project, but rather an attempt to fund renovations that
would allow 30 additional students to attend Mount Edgecumbe
beginning in the fall of 2004.
Co-Chair Wilken encouraged the Committee to consider whether a
better renovation project would be produced if the original 2005
project completion date were maintained. He asked why this
renovation project must be completed in 2004.
Senator B. Stevens recalled that the funding source for the
original Mount Edgecumbe renovation project was the Tax Credit
Relief Act, which was a one time funding source granted to the
State over a two-year period. He asked if any Tax Credit Relief Act
funds remain, and whether they could be used to fund this
supplemental request in place of general funds.
Co-Chair Green confirmed that an answer to that question would be
obtained.
Co-Chair Green asked if Mount Edgecumbe's enrollment is
consistently about 330 students. She also asked if the school has a
waiting list.
Ms. Rehfeld responded that Mount Edgecumbe's average enrollment has
been approximately 330 students, which is the maximum capacity of
the school. In addition, Mount Edgecumbe annually receives
approximately 300 student applications though it typically only has
100 to 140 openings.
Co-Chair Green asked for more information about the demand for
Mount Edgecumbe services. She asked if this request must be a FY 04
supplemental request.
Ms. Rehfeld explained that the Department needs the ability to move
forward with the proposed renovations and operational issues in
this fiscal year. She emphasized that it would be "extremely
difficult" for the Department to delay this funding request until
FY 05 considering that Mount Edgecumbe would be open to students in
August 2004.
Co-Chair Green referred to a chart titled "FY04 Supplemental
Amendment - Operating 30 Additional Students" in the memorandum
dated March 30, 2004 and asked about the passenger van request. She
assumed the van is needed to transport students between the
Pioneers' Home to the high school. She also asked if the line item
"Bus" listing a $10,600 cost represented the cost of hiring a bus
driver.
Ms. Rehfeld affirmed.
Co-Chair Green asked why air transportation costs were included in
the supplemental request.
Ms. Rehfeld replied that the Department provides Mount Edgecumbe
students one round trip airline ticket. The Department budgets for
the airline costs by estimating the number of students who would be
allotted tickets.
Co-Chair Green restated her question.
Ms. Rehfeld responded that the air transportation costs would not
be incurred until FY 05. She explained that the Department is
requesting operating funds in this supplemental to provide for an
additional 30 students to attend Mount Edgecumbe. These funds are
being requested in the FY 04 supplemental budget so the Department
could begin making plans regarding the acceptance of the additional
students.
Senator B. Stevens clarified that the operating costs in this
supplemental would be for the additional students, and not existing
students.
Ms. Rehfeld affirmed, and added that the operating costs for Mount
Edgecumbe's existing students are in the FY 05 operating budget.
She explained that the operating costs for the additional students
could have been offered as a FY 05 operating budget amendment, but
the Department chose to combine the additional operating costs with
the capital request involving the additional students in this FY 04
supplemental request.
Co-Chair Green assumed the contractual costs, except the passenger
van, are related to the Sitka Pioneers' Home.
Mr. Jeans replied that the contract costs would be used to amend
the current residential and food service contracts to allow for the
temporary use of the Pioneers' Home and for the additional
students. He added that this request must be included in the FY 04
supplemental budget because the Department needs to begin amending
the residential and food service contracts before July 1, 2004.
Co-Chair Green asked if these operating costs were for half of FY
05.
Ms. Rehfeld responded that the operating costs would be for the
full year. The Department's reference to a half year was related to
the anticipated completion of the dormitory renovation project in
December 2004, which would allow students to begin using the
expanded facility in January 2005.
Co-Chair Green understood. She clarified that the contractual costs
would allow the students to be housed in the Pioneers' Home until
the dormitory renovation is complete.
Ms. Rehfeld corrected that the residential contracts would also
have to be amended once the expanded dormitory facility is in use.
Co-Chair Green asked if the "FTE" line items on the "FY04
Supplemental Amendment - Operating 30 Additional Students" were
also contract related costs.
Ms. Rehfeld responded that the residential staff and the dorm
supervision would occur over the full academic year; however, the
dorm supervision would occur at the Pioneers' Home until the
dormitory expansion is complete.
Co-Chair Green asked for a further explanation of dormitory
supervision.
Ms. Rehfeld answered that the Department contracts a dormitory
management service.
Co-Chair Green asked if there are "dorm mothers" at Mount
Edgecumbe.
Ms. Rehfeld replied that there are contract employees who serve in
the dorm mother capacity.
AT EASE 10:16 AM / 10:19 AM
Department of Revenue and Department of Natural Resources
Co-Chair Green introduced the gas line funding request.
STEVE PORTER, Deputy Commissioner, Department of Revenue, gave a
brief overview of stranded gas, and the State's stranded gas goals.
He testified as follows.
From a perspective standpoint, I think what you've got to do
when you look at stranded gas in general, is to think about
four points. One is you have to understand the parties that
are required to play, and the other parties that might play
and participate in stranded [gas], and bringing the project to
fruition. You have to understand all of the risks, secondly,
and all of the costs and benefits associated with any project.
Thirdly, you have to be able to understand all of the options
you have to address those risks, so you really have to
understand those elements. And then, fourthly, you kind of
combine all of those together and you get a project. That is
the context in which we find ourselves.
If you look at the first element, the parties, the parties
that play and the parties that participate in any project are
basically the producers, because they are the owners of the
gas. They are either going to sell the gas or they are going
to market it themselves, but they play in almost any project
that goes forward because they have some relationship to the
gas, and a working interest in the gas. The federal government
plays in any project because they are going to take their
portion from a taxes standpoint in any project that plays as
well. State government is the same way. We have revenue; we
have royalty interests and tax interests, and the Canadian
government as well. These are all of the parties that must
play in any project. And so you have to understand that. The
other potential players that come to the table are, you have
heard of a whole list, Trans-Canada, Enbridge, Mid-American,
the Port Authority, the [Alaska Natural Gas] Development
Authority, [and] interestingly, the local distribution
companies. You've got Crystal Energy that you have heard
about, [and] a number of companies that may actually, from a
shipping standpoint, be willing to purchase the gas. All of
these are potential players. And the reason that you have to
understand each one of their perspectives is because none of
those additional players, other than the group at the top that
we have talked about [including] the feds [federal
government], the State and the producers, all of the rest of
these players only play if they bring something to the table
that is a tool or an alternative to address some of that risk.
In other words, they must take a piece of the risk, and add
incremental benefit to an overall project, or they don't
participate.
And so what the State is tasked with doing, is looking at all
of the different options that the different parties bring to
the table and understand those as alternatives or tools, and
then try to combine all of those tools into a risk package
that works on an overall project. So a lot of the stuff that
you see before us here today is trying to understand that risk
package: how the players bring value to the table. And we have
to understand that value to come to the State's recommendation
on how to move forward.
So that gives you the overall context that we find ourselves
in as we move forward with the project. What that results in
is, as one of these particular participants come to the table,
especially under the Stranded Gas Act, we have a
responsibility by law to negotiate a contract with any party
that can come to the table and meet the requirements of the
Act. So that is kind of going on concurrently with our
analysis. So you've got to understand that that is happening
as well: the negotiations with the producers, with Exxon, BP,
and Conoco Phillips, the negotiations that went on with
MidAmerican. If the Port Authority also ends up with an
application that meets the requirements of law, you have the
Port Authority. You have Enbridge as a possibility to come in
with an application. There are other parties that have also
called us as well. So each one of these parties who comes to
the table, what we are trying to do is to flesh out the value
of what they bring to the table to understand their
participation and their ability to share risk in their overall
project. So that is what we are trying to do, and that is
where the numbers come from.
Mr. Porter continued by discussing the risk analysis. The
Department is predicting costs totaling $5.8 million to be expended
primarily over the next four to six months. He referenced a
document provided by the Department of Revenue titled "Risk
Analysis Project", and explained that the first phase of the
project would involve defining the boundaries, and determining how
much risk the State could tolerate. He continued by listing the
action taken in the second phase of the project, and qualified that
the phases outlined in this document slightly overlap one another.
Phase three involves risk sharing between producers, the State
government, and the federal government. Each of these parties would
benefit in different ways to compensate for the risk assumed. In
addition to risk sharing, phase three also includes the creation of
a risk assessment model. Lastly, phase four involves producing
stranded gas project recommendations. The total cost of this risk
analysis project would be $1,580,000.
Mr. Porter stated that individual producer negotiations would
continue to occur during the risk analysis project. These
negotiations would "feed" the risk analysis project. The cost of
on-going negotiations would total $4.25 million, for a total cost
of $9.73 million for the State gas line right of way and the risk
analysis project.
MARK MYERS, Director, Division of Oil and Gas, Department of
Natural Resources, testified via teleconference from an offnet
location. He noted that it is an "exciting time" for the Alaska gas
line project as evidenced by the number of parties interested in
being involved with the project. The State needs to have the
expertise available to fully analyze the components of the gas line
proposals to ensure that the project provides maximum benefits to
the State. The State must consider the following when conducting
its analysis: the benefits each of these parties could offer the
State, the benefits the State could offer the producers, the
appropriate combination of producers, and the appropriate level of
risk sharing between the producers and the State. The State could
obtain some of this information directly from the producers, those
involved with the construction of the pipeline, marketers, and gas
users. However, certain data could not be obtained through these
direct sources, and other data would require due diligence to
eliminate subjectivity. The State must understand the project
itself: the intrinsic risks, the range of risks, and outcomes of
those risks. Acquiring this information would require sophisticated
analysis, and State government does not possess the needed
expertise. Because the State would assume added project benefits
and added project risks, it must gain an understanding of the
financial market by contracting financial institutions. These
issues would be addressed in the first phase of the risk analysis
project.
Mr. Myers emphasized that the risk assessment is a significant part
of the process. The State must contract firms to provide
information such the market value of gas, the benefits of a gas
line through Alberta, Canada, and tariffs. After the risks are
known, quantified, and modeled, the State would need to determine
risk sharing and present its findings to the parties in a "coherent
fashion".
Mr. Myers continued that this risk analysis should be conducted in
the near future because it is a lengthy process, requiring funding
in the FY 04 supplemental budget. This request should be
encouraging to the legislature because it reflects that the gas
line project is making progress.
Mr. Myers explained that the State is better able to establish the
gas line right of way than private industry. The State would assume
ownership of the right of way, and later transfer it to the
corporation chosen to construct the gas pipeline. Certain risks
would be assumed in establishing the right of way. For example,
after committing significant capital to this project, delays could
seriously affect the cost of the project. In addition, social costs
associated with the pipeline would be incurred. The State is in the
best position to minimize the costs and accelerate the process of
establishing a gas pipeline right of way. Furthermore, the State's
ownership of the gas line right of way would eliminate much risk
for the pipeline construction company.
Co-Chair Green welcomed questions of the witness. She expressed the
need for clear understanding of this request. She asked which
aspects of this request must be included in the FY 04 supplemental
budget, and which aspects could be included in the FY 05 budget.
Senator Olson assumed that general funds would be used to fund this
appropriation, and asked if any other fund sources would be
utilized.
Mr. Myers replied that possibly Permanent Fund Corporation funds
could be used. He deferred to Cheryl Frasca of the Office of
Management and Budget or Nico Bus of the Department of Natural
Resources.
Co-Chair Green asked that Steve Porter provide the requested
information.
Senator Bunde asked if the State's establishment of the gas line
right of way with the intention of a future transfer would be
comparable to the State's past investment in the Alaska Railroad,
which resulted in the railroad becoming a semi-autonomous State
entity.
Mr. Myers replied that the situations are similar, but the State
would transfer the gas line right of way to an existing state
entity rather than creating a new State entity. In addition, the
State would not actively manage the project once it was
transferred.
Senator Bunde expressed that the legislature should have more
control over the gas line right of way than has been allowed over
the Alaska Railroad.
Senator Olson recommended an additional supplemental budget request
that would appropriate funds to the Army Corps of Engineers for a
project in Shishmaref.
Co-Chair Green noted that Senator Olson has discussed the
Shishmaref project with the other members of the Committee. The
Committee is interested in assisting Senator Olson in obtaining the
funding for that project.
Co-Chair Green ordered the bill HELD in Committee.
Co-Chair Wilken chaired the remainder of the meeting.
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